How Bike Rental Shops Can Compete with Bike Sharing Services

[two_third]If you're a Bike Rental shop owner and the idea of bike sharing coming to your neighborhood is keeping you up at night, you're not alone. It's already spread to cities like New York City, Miami, and Minneapolis, and continues to crop up in others as well—all with the hopes that bike sharing will deliver everything from increased tourism revenue to reduced emissions.A lot of bike rental businesses' fears stem from the still unknown effect the rise of bike sharing will have on them—will it be a boon or bane?To ease some of that worry—and to try and answer that question—here's some early research you can dive into, as well as some concrete things you can do to account for bike sharing in your neck of the woods.

The Implications of Bike Sharing

First and foremost, what demographic are these bike-share programs appealing to? Bike-share systems, "seem to attract a particular profile of user: male, white, employed and … younger, more affluent, more educated and more likely to be already engaged in cycling independently of bike-sharing," according to an article on Next City.It also seems highly likely that more large cities will jump on board the bike-sharing wagon. Larger cities will likely invest first because of the large costs of the infrastructure required to make bike sharing a viable alternative.But what else do we know about the bike-share market?

• Bike sharing is here to stay, as it continues to be rolled out in more and more cities. In the long run, bike sharing may commoditize the 30 to 60 minute rental part of the market. If you're not in that market, you may not have to worry too much just yet.

• The resulting infrastructure from bike sharing will likely increase the demand for bikes in your area.

• It could also create a healthy business ecosystem. For example, in a Smart Growth America (2013) study, businesses along Victoria Street in San Francisco's Mission District reported a 60 percent increase in sales due to increased pedestrian and bicycle traffic after the installation of a new bike lane.

• Bike sharing can actually have a positive impact on your business. For example, in Minnesota a bike sharing service called Nice Ride expanded its program and bike rental shops have seen positive effects on their businesses because of what owners see as an increased interest in biking overall. Penn Cycle, a local bicycle rental shop, found bike rentals increasing by 10 percent to 15 percent.Penn Cycle, a local bicycle rental shop, found bike rentals increasing by 10 percent to 15 percent.In this case, rental shops provide better deals for longer use, while Nice Ride bikes appeal more to those looking for quick commutes.

• On the flip side, it could also negatively impact your business. For example, Cody Anderson, manager of Calhoun Rental bike shop, describes business being noticeably down since bike sharing arrived in his area.

Prepare for Bike Sharing In Your City

So, your city has yet to roll out a bike-share program, but has announced plans to implement one in the near future. Don't fret—here's a few things you can do to prepare:

• Avoid overreacting to a potentially competitive force. Instead, research, plan, and develop a strategy depending on how your business could be affected. To determine the affects on your business, use online scheduling software to help you report on the number of monthly bookings. This can help you ascertain how bike sharing may be affecting your business.

• Review your pricing and make sure it's competitive. Construct your pricing logically, such that if you're using the bike for more than just a one-way trip, it makes economical sense to rent the bike from your shop instead. For example, DecoBike in San Diego charges $18 for a four-hour rental ($5 overage charge applies if you're late) for a pretty basic bike. A four-hour rental is probably not a round trip, so DecoBike is targeting a different market segment here that may compete with yours. Make sure you have a bike "somewhat" close to that price (i.e. under $25) for the same types of customers. It's okay to charge more for a four-hour rental, just be sure customers clearly see the difference in value (i.e. a more comfortable ride, planned activities, customer service, no overage charges, someone to call in case of a problem, etc.).

Compete with Bike-Share Programs

A bike-share program operating in your city is far from an automatic death sentence for your business. Still, you should take a few steps to insure that your competing to the best of your ability. Here's a few ideas of what to do:

• Introduce a loss leader to compete head-to-head with bike sharing alternatives. A loss leader is a pricing strategy where you sell a product below its market cost. For example, CitiBike's pricing in Miami will run you $24 for a full day rental. You could offer an equivalent bike for $20.
• Try to eliminate overage charges from your pricing model. Overage charges are designed to punish the customer for guessing wrong, and to encourage customers to estimate high. Since bike-sharing models use overage charges extensively, eliminating them from how you do business could be attractive to your target customers. For example, if your bike is $10 for four hours, that implies the bike was rented at $2.50 an hour. If your customer goes over an hour, you could give them a grace period and just charge them additional $2.50 instead of an overage charge of $4 every 30 minutes like CitiBike does.
• There are a lot of bikes you can own for under $200 that an average cyclist would probably be happy with. With that in mind, you could offer financing for local renters. As an alternative to purchasing a bike sharing subscription for $99/year, you could offer your customers a lease to own option where at the end of 2 years they would actually own the bike for a similar amount spent. Alternatively you could offer rental credits that customers can cash in later for discounts on buying a new bike.

Whether it's planning for bike sharing in your area or better competing with bike sharing, take the time to do your research first. Remember that correlation doesn't necessarily mean causation. In other words, just because bike sharing arrived in your neighborhood and your sales have changed, doesn't necessarily mean that bike sharing is the culprit.